Question 1

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

Accepted Answer

A)  0.9% 
B)  9.0% 
C)  2.5% 
D)  90% 
A)  0.9% 
B)  9.0% 
C)  2.5% 
D)  90%

Question 2

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

Accepted Answer

A)  90 in Minneapolis and 83 in Louisville 
B)  90 in Minneapolis and 72 in Louisville 
C)  100 in Minneapolis and 89 in Louisville 
D)  105 in Minneapolis and 90 in Louisville 
A)  90 in Minneapolis and 83 in Louisville 
B)  90 in Minneapolis and 72 in Louisville 
C)  100 in Minneapolis and 89 in Louisville 
D)  105 in Minneapolis and 90 in Louisville

Question 3

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)  1.5 percent. 
B)  7.5 percent. 
C)  10 percent. 
D)  20 percent. 
A)  1.5 percent. 
B)  7.5 percent. 
C)  10 percent. 
D)  20 percent.

Question 4

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct?

Accepted Answer

A)  If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that basket of goods cost $60 in 2015. 
B)  If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016. 
C)  The overall level of prices increased by 60 percent between 2014 and 2016. 
D)  All of the above are correct. 
A)  If the basket of goods that is used to calculate the CPI cost $40 in 2014, then that basket of goods cost $60 in 2015. 
B)  If the basket of goods that is used to calculate the CPI cost $25 in 2015, then that basket of goods cost $35 in 2016. 
C)  The overall level of prices increased by 60 percent between 2014 and 2016. 
D)  All of the above are correct.

Question 5

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

Accepted Answer

The nomina

Question 6

Table 24-6
The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs.  
-Refer to Table 24-6. If the base year is 2011, then the CPI

Accepted Answer

A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011. 
A)  increased from 2009 to 2010 and increased from 2010 to 2011. 
B)  increased from 2009 to 2010 and decreased from 2010 to 2011. 
C)  decreased from 2009 to 2010 and increased from 2010 to 2011. 
D)  decreased from 2009 to 2010 and decreased from 2010 to 2011.

Question 7

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.  
-Refer to Table 24-1. What belongs in space C?

Accepted Answer

A)  120 
B)  25% 
C)  8.7% 
D)  12% 
A)  120 
B)  25% 
C)  8.7% 
D)  12%

Question 8

If the CPI was 125 this year and 120 last year, then

Accepted Answer

A)  the cost of the CPI basket of goods and services increased by 4.2 percent this year. 
B)  the price level increased by 4.2 percent this year. 
C)  the inflation rate for this year was 4.2 percent. 
D)  All of the above are correct. 
A)  the cost of the CPI basket of goods and services increased by 4.2 percent this year. 
B)  the price level increased by 4.2 percent this year. 
C)  the inflation rate for this year was 4.2 percent. 
D)  All of the above are correct.

Question 9

The consumer price index is subject to substitution bias because

Accepted Answer

A)  some pairs of goods are complements rather than substitutes. 
B)  some goods are inferior rather than normal. 
C)  the law of demand applies to most, if not all, goods. 
D)  the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods. 
A)  some pairs of goods are complements rather than substitutes. 
B)  some goods are inferior rather than normal. 
C)  the law of demand applies to most, if not all, goods. 
D)  the index does not take into account the likelihood that consumers substitute newly-introduced goods for more- established goods.

Question 10

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

Accepted Answer

A)  The CPI involves a base year; the GDP deflator does not involve a base year. 
B)  The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate. 
C)  The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers. 
D)  The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services. 
A)  The CPI involves a base year; the GDP deflator does not involve a base year. 
B)  The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate. 
C)  The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers. 
D)  The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

Question 11

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

Accepted Answer

A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0. 
A)  90.9. 
B)  104.0. 
C)  105.0. 
D)  110.0.

Question 13

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

Accepted Answer

A)  -9.5 percent. 
B)  -4.5 percent. 
C)  4.5 percent. 
D)  9.5 percent. 
A)  -9.5 percent. 
B)  -4.5 percent. 
C)  4.5 percent. 
D)  9.5 percent.

Question 14

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $8.00 an hour and is scheduled to index their wages today. If the CPI is currently 160 and was 128 a year ago, the firm should increase the hourly wages of its workers by

Accepted Answer

A)  $0.25. 
B)  $1.60. 
C)  $2.00. 
D)  $2.56. 
A)  $0.25. 
B)  $1.60. 
C)  $2.00. 
D)  $2.56.

Question 15

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

Accepted Answer

A)  $43,849.05 
B)  $61,263.43 
C)  $63,195.34 
D)  $93,655.50 
A)  $43,849.05 
B)  $61,263.43 
C)  $63,195.34 
D)  $93,655.50

Question 16

Scenario 24-3
Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013.
-Refer to Scenario 24-3. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

Accepted Answer

A)  11.0 percent 
B)  65.2 percent 
C)  70.9 percent 
D)  114.7 percent 
A)  11.0 percent 
B)  65.2 percent 
C)  70.9 percent 
D)  114.7 percent

Question 17

Table 24-3
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn.  
-Refer to Table 24-3. The cost of the basket in 2012 was

Accepted Answer

A)  $108. 
B)  $116. 
C)  $112. 
D)  $224. 
A)  $108. 
B)  $116. 
C)  $112. 
D)  $224.

Question 18

Table 24-1
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.  
-Refer to Table 24-1. What belongs in space A?

Accepted Answer

A)  14 
B)  150 
C)  144 
D)  154 
A)  14 
B)  150 
C)  144 
D)  154

Question 19

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

Accepted Answer

A)  macroeconomic price index. 
B)  producer price index. 
C)  rental unit price index. 
D)  terms of trade. 
A)  macroeconomic price index. 
B)  producer price index. 
C)  rental unit price index. 
D)  terms of trade.

Question 20

The inflation rate you are likely to hear on the nightly news is calculated from

Accepted Answer

A)  the GDP deflator. 
B)  the CPI. 
C)  the Dow Jones Industrial Average. 
D)  the unemployment rate. 
A)  the GDP deflator. 
B)  the CPI. 
C)  the Dow Jones Industrial Average. 
D)  the unemployment rate.

Exam 24: Measuring the Cost of Living

From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

Pauline is offered a Job in Minneapolis that pays $80,000. She is offered a similar job in Louisville that pays$71,200. Which pair of CPIs would ensure that the two salaries have the same purchasing power?

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

For an imaginary economy, the consumer price index was 80 in 2014, 100 in 2015, and 140 in 2016. Which of the following statements is correct?

If the real interest rate is 6.8% and the inflation rate is 3.9%, what is the nominal interest rate?

Table 24-6 The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. -Refer to Table 24-6. If the base year is 2011, then the CPI

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space C?

If the CPI was 125 this year and 120 last year, then

The consumer price index is subject to substitution bias because

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is

Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. -Refer to Table 24-3. The cost of the basket in 2012 was

Table 24-1 The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. -Refer to Table 24-1. What belongs in space A?

In addition to the consumer price index, the Bureau of Labor Statistics also calculates the

The inflation rate you are likely to hear on the nightly news is calculated from

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters